microfinance investment opportunity for the broad base of retail investors

Microfinance investment opportunity Microfinance investment opportunity for the broad base of retail investorsfor the broad base of retail investors

TBLI CONFERENCE™ ASIA 2010

Satoru Yamamoto

Deputy General Manager

Head of Planning Section

Product Planning Dept.

Daiwa Securities Co. Ltd.

Workshop 10 - Microfinance

May 28th 2010

2

This document has been prepared by Daiwa Securities Co. Ltd. (“Daiwa Securities”) based on information, the sources of which are believed by Daiwa Securities to be reliable, but Daiwa Securities makes no representation nor warranty as to the accuracy or completeness of such information. Recipients of this document must make their own decisions on whether or not to adopt the recommendations discussed in this document, based upon their specific situations and objectives. Any use, disclosure, distribution, dissemination, copying, or reproduction of this document without prior written consent from Daiwa Securities is prohibited.

About Daiwa Securities Group Business structure

Robust retail customer base Sales of foreign currency bonds

(Daiwa Securities)

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

2008 Jan-Mar

2008 Apr-Jun

2008 Jul-Sep

2008 Oct-Dec

2009 Jan-Mar

2009 Apr-Jun

2009 Jul-Sep

2009 Oct-Dec

2010 Jan-Mar

($ million)

Sales of mutual funds(Daiwa Securities)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008 Jan-Mar

2008 Apr-Jun

2008 Jul-Sep

2008 Oct-Dec

2009 Jan-Mar

2009 Apr-Jun

2009 Jul-Sep

2009 Oct-Dec

2010 Jan-Mar

($ million)

3


Daiwa’s initiative in TBLIYear Name Issuer

Ratings(Moody's/S&P)

LeadManager

Currency Coupon TenorSettlement

DateAmount

(USD million)

Vaccine Bond IFFIm Aaa/AAA Daiwa ZAR 9.90% 2y 19-Mar-08 $211

World CO2LTM Bond World Bank Aaa/AAA Daiwa USD Floating 5y3m 26-Jun-08 $25

JBIC EnvironmentalSupport Bond

Japan Bank forInternational Cooperation

Aaa/AAMitsubishi

UFJJPY 1.51% 5y 27-Jun-08 $188

ZAR 6.26%

AUD 2.60%

NZD 2.65%

USD 1.00%

AUD 3.51%

AUD 4.36%

ZAR 6.85%

ZAR 0.50% 15y

Microfinance Bond International Finance Corporation Aaa/AAA Daiwa AUD 5.10% 3y 20-Nov-09 $275

Green Bond World Bank Aaa/AAA Daiwa NZD 5.23% 5y 3-Feb-10 $106

NZD 4.49%

ZAR 7.43%

BRL 8.00% 5y

AUD 4.83%

ZAR 7.43%

Vaccine Bond IFFIm Aaa/AAA Daiwa ZAR 7.15% 3y 24-Mar-10 $338

Clean Energy Bond African Development Bank Aaa/AAA Mizuho NZD 4.52% 4y 30-Mar-10 $78

ZAR 7.18% 3y

AUD 4.40% 2y

ZAR 6.68% 3y

AUD 4.27% 2y

AUD 4.68%

NZD 4.35%

ZAR 7.08%

AUD 5.23%

Microfinance BondEuropean Bank for

Reconstruction and DevelopmentAaa/AAA Daiwa ZAR TBD 3y 15-Jun-10 TBD

3y 28-May-10 $101Green Bond Kommunalbanken Norway Aaa/AAA

Water Bond

3y6m

Aaa/AAA

Aaa/AAA

Climate Awareness Bond European Investment Bank Daiwa

Asian Development Bank DaiwaAaa/AAA

Clean Energy Bond African Development Bank Mizuho

$200

$437

$144

$132

$207

$106

$625

$368

Aaa/AAA

28-May-10

21-May-10

16-Apr-10

4yHSBC 15-Mar-10

Nomura 3y

Nikko

Climate Awareness Bond European Investment Bank Aaa/AAA

28-May-09

Vaccine Bond 25-Jun-094y

2008

Daiwa

MitsubishiUFJ

HSBCAaa/AAA

Vaccine Bond 20-Feb-09Aaa/AAAIFFIm 3y

2009Vaccine Bond IFFIm Aaa/AAA 3y

IFFIm

2010

EnvironmentalSupport Bond

Nordic Investment Bank 3-Feb-10

4


Microfinance in Japan (2009)

No MFI

No MIV

Growing interests in TBLI among retail investors

IFFIm Vaccine Bonds (March 2008, February 2009, March 2010)

World CO2LTM Bond (June 2008)

World Bank Green Bonds (January 2010)

ADB Water Finance Bonds (April 2010)

EIB Climate Awareness Bonds (June 2010)

Others

Household financial asset of $15.5 trillion can be an important source offunds for MFIs in developing countries

5


SRI Market Size

2,711

3,889

505

80

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

US EU13 Canada Japan

（billion dollars）

Retail led SRI market

Primary sources: European SRI Study 2008

(as of the end of 2007)

United States

InstitutionalInvestors

93%

IndividualInvestors

7%

EU13


94%

IndividualInvestors

6%

Canada


96%

IndividualInvestors

4%

Japan


12%

IndividualInvestors

88%

6


Deep pockets prefer safety

Billions of dollars, as of the end of FY2008

Japan* United Kingdom* Germany* France* United States

(%) (%) (%) (%) (%)

Total Financial Assets 15,555 100.0 5,356 100.0 6,168 100.0 4,829 100.0 41,706 100.0Currency and deposits 8,680 55.8 1,718 32.1 2,429 39.4 1,498 31.0 7,902 18.9Life insurance and pension fund reserves 4,342 27.9 2,758 51.5 2,082 33.8 1,924 39.8 11,622 27.9Shares and other equity 934 6.0 436 8.1 481 7.8 693 14.3 13,174 31.6Mutual funds and securitis other than shares 999 6.4 267 5.0 1,120 18.2 496 10.3 7,498 18.0Others 601 3.9 177 3.3 56 0.9 218 4.5 1,509 3.6

Total Financial Liabilities 4,189 26.9 2,107 39.3 2,142 34.7 1,695 35.1 14,218 34.1

Net Financial Assets 11,367 73.1 3,249 60.7 4,026 65.3 3,134 64.9 27,488 65.9

Primary sources: United States: Federal Reserve Statistical Release, Flow of Funds Accounts, December 10, 2009. United Kingdom: Office for National Statistics, Financial Statistics No 572, December 2009. Germany: Deutsche Bundesbank, Financial Accounts for Germany 1991 to 2008. France: Banque de France, Financial Accounts and Financial Balance Sheets, October 1, 2009. Japan: Bank of Japan, Flow of Funds Accounts , September 17, 2009 　　

* converted into US dollars based on the year-end exchange rates of GBPUSD=1.46, EURUSD=1.40, USDJPY=90.60

19%

31%

18%

4%

28%

56%

6%

6%4%

28%

32%

5% 3%

8%

52% 39%8%

18%1%

34%

31%

14%

10%5%

40%

Japan United Kingdom

Germany

France United States

Currency and deposits Life insurance and pension fund reserves Shares and other equity Mutual funds and securitis other than shares Others

Currency and

deposits

Currency &

deposits

Insurance& PensionShares

Mutual funds

Others

Financial Assets and Liabilities of Households

7


Typical structure of MIV

Microfinance InstitutMicrofinance Institutionsions

(MFIs)(MFIs)

Microfinance InstitutMicrofinance Institutionsions

(MFIs)(MFIs)Micro-lendersMicro-lendersMicro-lendersMicro-lenders

DonorDonorDonorDonor

FoundationsFoundationsFoundationsFoundations

IFIsIFIsIFIsIFIs

Private Private InvestorsInvestorsPrivate Private

InvestorsInvestors

Institutional Institutional InvestorsInvestors

Institutional Institutional InvestorsInvestors MezzanineMezzanineMezzanineMezzanine

JuniorJuniorEquityEquityJuniorJuniorEquityEquity

Senior debtSenior debtSenior debtSenior debt

Microfinance Microfinance Investment Investment Vehicle Vehicle

(MIV)(MIV)

Micro-depositorsMicro-depositorsMicro-depositorsMicro-depositors

Local banksLocal banksLocal banksLocal banks

Commercial / Private

Social / Public

8


IFC Microfinance Bonds

First microfinance investment product in Japan*

$275 million equivalent raised (fully subscribed)

Distributed to 12,000 retail investors in 10 business days

Average investment amount of $18,000 equivalent

Received great public responses

*settlement date basis

Japanese investorsJapanese investors

IFC

MFIsMFIs

Entrepreneurial poor in developing countries

MFIsMFIs

MIVs

　 Cash flow　 Summary terms

Issuer : International Finance Corporation

Rating : Aaa/AAA

Amount : AUD 300 million

Settlement Date : 20-Nov-09

Maturity Date : 26-Nov-12

Coupon : 5.10% per annum (semiannual payment)

Denomination : AUD 1,000

Lead Manager : Daiwa Capital Markets Europe Limited

Investor : Japanese retail and institutional investors

9


Investor Forum

Daiwa Microfinance Forum 2009

Date: October 27th, 2009

Venue: GranTokyo North Tower 18F Conference Room

Speaker: Sir Fazle Hasan Abed, Founder and Chairperson of BRAC

Mr. Masahiro Kan, Former Professor of Hokkaido University Public Policy School

Mr. Mark Berryman, Investment Officer/Microfinance Specialist, International Finance Corporation

Mr. Morihiko Hiramatsu, Goodwill Ambassador of One Village One Product Movement

No. of Audience: 196

10


Factors that attract 12,000 investors

Social & sustainable impact

IFC will direct an amount equal to the net proceeds of the bonds to MFIs and MIVs

Simple scheme

Plain vanilla issue under known issuance program

Triple-A credit quality

Sound return

5.1% p.a. fixed coupon paid semiannually in Australian dollars

Low maintenance cost

Outsourcing of administration to IFC

screening and monitoring of MIVs and MFIs

annual reporting of IFC’s microfinance activities

11


Pros and cons

IFC Microfinance Bonds MFI-issued notes

Credit rating

Documentation

Funding capacity

Currency hedging

Secondary market

Direct involvement

Diversification effect

12


Moving forward

IFC Microfinance Bonds successfully opened the door

Next step is setting up microfinance mutual funds in order to

　 achieve more direct involvement (social return aspect)

　 gain portfolio diversification effect (financial return aspect)

Challenges

　 Liquidity

　 NAV calculation

　 Maintenance

　 Optimal fund size

13


Voices from customers

What kind of involvement in microfinance do you consider ?What kind of involvement in microfinance do you consider ?

What kind of microfinance products are you interested in ?What kind of microfinance products are you interested in ?

Source: Questionnaire at Daiwa Microfinance Forum 2009, October 27Source: Questionnaire at Daiwa Microfinance Forum 2009, October 27 thth

*multiple answers allowed

*multiple answers allowed

26

17

13

13

15

16

Mutual funds

MFI-issued notes

Structured products

Private equity

Similar to IFC Microfinance Bonds

Any if social index is developed

23

7

14

16

12

25

As an investor

As an asset manager

As charitable activities

Alliance/JV with MFIs

Establishing MF operations

No plan so far

14


Important notice

Regarding Fees and Risks

Regarding expenses and costs including fees and commissions

・ Only the price value is to be paid to purchase bond

・ Trading foreign currency securities requires submission of application document for opening a foreign securities trading account and charges a maximum of ¥3,150 (including tax) of custody fee other than the purchase price

Regarding risks in investment

・ Sale price of bond may fall below the par value in case of the sale before maturity date,

as the price of bond fluctuates due to the change in interest rate and other factors.

・ Investment in foreign currency-denominated bond may fall below the par value of 　 investment as the yen value of the bond fluctuates due to the change in yen value of coupon 　 and proceed from redemption against the foreign currency.

・ Investment in bond may fall below the par value of investment due to the change in the bond issuer’s management and financial status and the change in the third party’s 　 evaluation on those factors

Regarding other notices in investment

・ Risks and expenses and costs including fees and commissions differ in each product, so please be sure to carefully read the document provided prior to the execution of agreement, prospectus and other documents.

Corporate name: Financial instruments firm: Memberships:

Daiwa Securities Co. Ltd.chief of Kanto Local Finance Bureau (Kin-sho) No.108Japan Securities Dealers AssociationJapan Securities Investment Advisors AssociationThe Financial Futures Association of Japan

Thank you

Daiwa Securities Co. Ltd. | 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6752, Japan | www.daiwa-grp.jp/ir/english/index.cfm

microfinance investment opportunity for the broad base of retail investors

Economy & Finance